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The cause of the inflation matters in how the response plays out. The inflation we're seeing currently isn't being driven by the general population having too m

by Jochim 4y ago

The cause of the inflation matters in how the response plays out. The inflation we're seeing currently isn't being driven by the general population having too much money but the response by central banks has been to act like it is. Personally I view the two major factors to be post pandemic shipping costs and the Ukraine. A meaningful response from government could have headed this off but instead we're seeing energy producers hit record profits while large parts of society are going to be unable turn their heating on over the winter and on top of that rising interest rates are going to see every other aspect of their budget become even more expensive as well.

belorn 4y ago
There are multiple studies and theories being put out on why inflation occur, both now and in the past. I don't really see a major consensus on a single explanation. The two major one that seems to make most sense to me is "net importing vs net exporter", and the other is the theory about low supply. For the first one, if a country is importing more than exporting, then the imports is being paid over time by the exports. Increasing the amount of money in such country does nothing since its the exported products that pay for the imports, not the currency. The second theory is that in periods where demand exceed that of supply. In those situation people will bid to buy the limited resource, and if you increase the amount of money circulating then the bids will simply go up for the same limited resource. Natural gas is being used as an example in Europe, where the only way to reduce inflation is to reduce consumption. Reduced consumption however slows economic growth and thus a conflict between inflation and growth.
- Jochim 4y ago
  > There are multiple studies and theories being put out on why inflation occur, both now and in the past. I don't really see a major consensus on a single explanation. I wasn't suggesting a general explanation for all cases of inflation. I'm saying that the current inflationary period has some easily identifiable causes and the measures that central banks take against general background inflation are actively harmful in this situation and instead should be tackled by government directly. The second theory is the closest explanation for the current inflationary period and the measures are perfectly fine if you're talking about curbing the consumption of luxury goods and services. It falls down when you're targeting the necessities of survival because at that point you're effectively choosing to kill off some of your population because of a refusal to regulate.
ceeplusplus 4y ago
> The inflation we're seeing currently isn't being driven by the general population having too much money Actually, it partially is. One third of the current inflation is demand driven according to the Fed (i.e. stimulus checks, unemployment payments, above-market wages due to unemployment checks, etc.) [1]. There are also supply shortages but it's hard to disentangle what part of the supply shortages are due to shipping costs vs. having labor shortages due to said unemployment checks. We're seeing a lot of the price pressures calm down now as coincidentally, the labor force grows back to pre-pandemic size. [2] > A meaningful response from government could have headed this off Like what, putting a price cap on oil? That doesn't work and you and I both know it. [1] https://www.reuters.com/markets/us/demand-issues-account-one-third-us-inflation-spike-sf-fed-2022-06-21 https://www.reuters.com/markets/us/demand-issues-account-one... [2] https://www.wsj.com/articles/your-steak-is-getting-cheaper-at-the-supermarket-11661160602?mod=hp_lista_pos4 https://www.wsj.com/articles/your-steak-is-getting-cheaper-a...
- wyre 4y ago
  >(i.e. stimulus checks, unemployment payments, above-market wages due to unemployment checks, etc.) Yours source doesn’t mention these at all. Unemployment stimulus ended last year at the latest. It mentions supply being half the cause, and demand, being a third. This doesn’t deny your point, but your reasoning is unfounded. When are people going to stop blaming stimulus and unemployment that stopped happening years ago at this point?
  - ceeplusplus 4y ago
    > When are people going to stop blaming stimulus and unemployment that stopped happening years ago at this point Because even though it stopped happening a year and a half ago, a lot of stuff was closed down still so people weren't spending yet. They were saving. Americans built up $2.7T in "excess" savings [1]. That money is being spent, and has been spent, over the last 6 months to a year. Notice that inflation really only started up after re-opening. The article gives two examples, one of a public policy employee who got an extra $500/mo from the pause in student loan payments and built up substantial savings, and a family that was laid off but received equivalent funds from unemployment, and ended up with more money than they previously had due to stimulus+child tax credit. The family ended up spending money on dance/karate lessons for their kids. So not only did a lot of people not seek alternative employment (e.g. in a different field) when laid off due to inflated unemployment benefits, but they also ended up being able to spend more than they could previously afford due to stimulus. What does that additional spending require? More labor, which there was a shortage of due to unemployment payments. If it was only energy costs and supply chain that was causing inflation, we'd see substantially decreased consumption and few wage hikes. Wage hikes are driven by labor's supply relative to demand, not by cost of living (although CoL can affect supply). We are seeing relatively high demand relative to supply and increased bargaining power for a lot of labor, which implies decreased supply. Guess where that decrease came from? [1] https://www.wsj.com/articles/americans-finances-got-stronger-in-the-pandemicconfounding-early-fears-11641736069 https://www.wsj.com/articles/americans-finances-got-stronger...

by Jochim 4y ago

belorn 4y ago

There are multiple studies and theories being put out on why inflation occur, both now and in the past. I don't really see a major consensus on a single explanation. The two major one that seems to make most sense to me is "net importing vs net exporter", and the other is the theory about low supply. For the first one, if a country is importing more than exporting, then the imports is being paid over time by the exports. Increasing the amount of money in such country does nothing since its the exported products that pay for the imports, not the currency. The second theory is that in periods where demand exceed that of supply. In those situation people will bid to buy the limited resource, and if you increase the amount of money circulating then the bids will simply go up for the same limited resource. Natural gas is being used as an example in Europe, where the only way to reduce inflation is to reduce consumption. Reduced consumption however slows economic growth and thus a conflict between inflation and growth.

Jochim 4y ago
> There are multiple studies and theories being put out on why inflation occur, both now and in the past. I don't really see a major consensus on a single explanation. I wasn't suggesting a general explanation for all cases of inflation. I'm saying that the current inflationary period has some easily identifiable causes and the measures that central banks take against general background inflation are actively harmful in this situation and instead should be tackled by government directly. The second theory is the closest explanation for the current inflationary period and the measures are perfectly fine if you're talking about curbing the consumption of luxury goods and services. It falls down when you're targeting the necessities of survival because at that point you're effectively choosing to kill off some of your population because of a refusal to regulate.

ceeplusplus 4y ago

> The inflation we're seeing currently isn't being driven by the general population having too much money Actually, it partially is. One third of the current inflation is demand driven according to the Fed (i.e. stimulus checks, unemployment payments, above-market wages due to unemployment checks, etc.) [1]. There are also supply shortages but it's hard to disentangle what part of the supply shortages are due to shipping costs vs. having labor shortages due to said unemployment checks. We're seeing a lot of the price pressures calm down now as coincidentally, the labor force grows back to pre-pandemic size. [2] > A meaningful response from government could have headed this off Like what, putting a price cap on oil? That doesn't work and you and I both know it. [1] https://www.reuters.com/markets/us/demand-issues-account-one-third-us-inflation-spike-sf-fed-2022-06-21 https://www.reuters.com/markets/us/demand-issues-account-one... [2] https://www.wsj.com/articles/your-steak-is-getting-cheaper-at-the-supermarket-11661160602?mod=hp_lista_pos4 https://www.wsj.com/articles/your-steak-is-getting-cheaper-a...

wyre 4y ago
>(i.e. stimulus checks, unemployment payments, above-market wages due to unemployment checks, etc.) Yours source doesn’t mention these at all. Unemployment stimulus ended last year at the latest. It mentions supply being half the cause, and demand, being a third. This doesn’t deny your point, but your reasoning is unfounded. When are people going to stop blaming stimulus and unemployment that stopped happening years ago at this point?
- ceeplusplus 4y ago
  > When are people going to stop blaming stimulus and unemployment that stopped happening years ago at this point Because even though it stopped happening a year and a half ago, a lot of stuff was closed down still so people weren't spending yet. They were saving. Americans built up $2.7T in "excess" savings [1]. That money is being spent, and has been spent, over the last 6 months to a year. Notice that inflation really only started up after re-opening. The article gives two examples, one of a public policy employee who got an extra $500/mo from the pause in student loan payments and built up substantial savings, and a family that was laid off but received equivalent funds from unemployment, and ended up with more money than they previously had due to stimulus+child tax credit. The family ended up spending money on dance/karate lessons for their kids. So not only did a lot of people not seek alternative employment (e.g. in a different field) when laid off due to inflated unemployment benefits, but they also ended up being able to spend more than they could previously afford due to stimulus. What does that additional spending require? More labor, which there was a shortage of due to unemployment payments. If it was only energy costs and supply chain that was causing inflation, we'd see substantially decreased consumption and few wage hikes. Wage hikes are driven by labor's supply relative to demand, not by cost of living (although CoL can affect supply). We are seeing relatively high demand relative to supply and increased bargaining power for a lot of labor, which implies decreased supply. Guess where that decrease came from? [1] https://www.wsj.com/articles/americans-finances-got-stronger-in-the-pandemicconfounding-early-fears-11641736069 https://www.wsj.com/articles/americans-finances-got-stronger...